How to Get an Arkansas Farm Tax Exemption

The Arkansas agricultural tax exemption is a state sales tax relief program designed to lower operating costs for those in the state’s agricultural sector. By exempting certain purchases from sales and use tax, the policy supports the financial viability of farming operations. The financial relief provided is intended to help farmers and ranchers remain competitive. The exemption covers a range of items and services directly related to the production of food and fiber.

Eligibility for the Agricultural Exemption

To qualify for the Arkansas agricultural sales tax exemption, an individual or business must be engaged in “farming” as defined by state law. This definition centers on the commercial production of agricultural products intended for sale. The primary requirement is that the operation produces food or fiber as a business, not for personal consumption. Using farm products primarily for one’s own use disqualifies the purchaser from the exemption.

The scope of qualifying operations is broad, encompassing many forms of agriculture. This includes traditional crop farming, the raising of livestock and poultry, and aquaculture. Nurseries that cultivate and sell grass sod or other nursery products as a business also fall under the definition of farming for exemption purposes. The key is the commercial nature of the enterprise, meaning the products are grown or raised with the intent to be sold.

Landowners who materially participate in a commercial farming operation may also be eligible for the exemption, even if they are not the primary farmer. A landowner who shares in the cost of inputs like fertilizer and seed for a crop grown on their land by a tenant farmer can claim the exemption for those purchases. The purchased items must be used for the commercial production of agricultural goods.

Exempt Items and Services

The Arkansas agricultural exemption covers a wide array of tangible personal property and specific services, provided they are used “exclusively and directly” in commercial farming. This usage requirement means that if an item is used for any non-farming purpose, such as personal recreation or household chores, its purchase does not qualify for the tax exemption.

Farm Equipment and Machinery

New and used farm equipment and machinery are exempt from sales tax under Arkansas Code § 26-52-403. This includes major agricultural implements like tractors, combines, balers, and irrigation pipes. The exemption also extends to equipment used by one farmer to harvest crops for another as a service. However, items like hand tools, fencing materials, and vehicles that require state registration are not considered exempt farm machinery. Attachments and accessories not sold as part of an assembled unit are also taxable.

Feed, Seed, and Fertilizer

This category includes feedstuffs for livestock and poultry, such as processed grains and supplements. Seeds and plants used to produce food for human or animal consumption are also exempt. Furthermore, the exemption applies to agricultural fertilizers, limestone, and other chemicals used to enrich the soil and promote crop growth in a commercial setting.

Chemicals

A variety of agricultural chemicals qualify for the exemption. This includes pesticides, herbicides, and fungicides used to protect crops and animals. Vaccines, medications, and other medicinal preparations for treating commercial livestock and poultry are also exempt from sales tax.

Repair Services

A limitation of the exemption is that it does not extend to repair labor or replacement parts for farm machinery. While the initial purchase of a qualifying tractor may be tax-free, any subsequent costs for parts or the labor to install them are subject to the state’s sales tax.

Obtaining and Completing the Exemption Certificate

To claim the tax exemption on qualifying purchases, a farmer must provide the seller with a properly completed exemption certificate. The primary document for this purpose is the Commercial Farming Exemption Certificate, Form ST-403. This form serves as a written declaration that the purchaser is engaged in commercial farming and that the items being bought will be used exclusively for that purpose. The form can be downloaded from the Arkansas Department of Finance and Administration’s website.

When filling out Form ST-403, the purchaser must provide their full name, address, and a description of the agricultural products they grow or raise, such as “soybeans,” or “nursery stock.” The form requires a signature, certifying that the information is accurate. Any misuse of the exemption can lead to the assessment of back taxes, penalties, and interest.

For purchases of All-Terrain Vehicles (ATVs) claimed under the farm exemption, a separate form, ET-819, is required. This form demands more detailed information, including the vehicle’s make, model, identification number, and the purchaser’s tax ID number. This heightened requirement is due to the frequent misuse of the exemption for ATVs. The seller is responsible for submitting this specific form to the Department of Finance and Administration.

Using Your Exemption Certificate

The farmer must present the signed certificate to the vendor at the time of purchase. This action notifies the seller that the transaction is exempt from sales tax. The seller, upon receiving the completed form in good faith, is relieved of the liability to collect sales tax on that specific sale.

After accepting the certificate, the seller will remove the state and local sales tax from the invoice for the qualifying items. It is the farmer’s responsibility to ensure they only use the exemption for legitimate business purchases that meet the “directly and exclusively” use test. The purchaser should retain a copy of the exemption certificate for their own financial records.

Sellers are required by law to keep the completed exemption certificates on file for a period of six years from the date of the sale. These records must be available for inspection by the Department of Finance and Administration during an audit. Proper record-keeping by both the purchaser and the seller is a component of the exemption process.